Opinion
No. CV 08-4038312-S
February 18, 2010
MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT (#132) AND CROSS MOTION FOR SUMMARY JUDGMENT (#140)
This is a wage enforcement action brought by the commissioner of the Connecticut Department of Labor ("commissioner"), pursuant to General Statutes § 31-72, against the defendant, Fireman's Fund Insurance Co. ("Fireman's Fund"). Presently before the court are the defendant's motion for summary judgment (#132) and the plaintiff's cross motion for summary judgment (#140). The principal issue raised by these motions is whether the refusal by Fireman's Fund to pay certain bonuses to an employee who voluntarily left the company violates General Statutes § 31-71b. Based on the analysis set forth below, the court grants the employer's motion for summary judgment and denies the commissioner's cross motion for summary judgment.
FACTS AND PROCEDURAL HISTORY
The commissioner commenced this wage enforcement action against Fireman's Fund on June 28, 2008. The commissioner alleges that Fireman's Fund violated General Statutes § 31-71b by refusing to pay wages to Peter Neag, an employee. Specifically, the commissioner alleges that Fireman's Fund owes Neag $30,000 in vested bonus payments and, pursuant to § 31-72, seeks double damages, attorneys fees, costs, and interest from the date that Neag should have received his bonus.
General Statutes § 31-71b provides in relevant part: "Each employer . . . shall pay weekly all moneys due each employee . . ."
General Statutes § 31-72 provides in relevant part: "When any employer fails to pay an employee wages in accordance with the provisions of sections 31-71a to 31-71i, inclusive, or fails to compensate an employee in accordance with section 31-76k . . . such employee . . . may recover, in a civil action, twice the full amount of such wages, with costs and such reasonable attorneys fees as may be allowed by the court . . ."
In her single-count complaint, the commissioner alleges the following facts. One of Fireman's Fund's former employees, Peter Neag, brought a statement of claim for wages to the department of labor on July 1, 2006. Neag began working as a senior claims representative at Fireman's Fund's Connecticut office in July 1989, and was subsequently promoted to the position of claims director. He served as claims director from January 1, 2004, to February 4, 2005, when he voluntarily left Fireman's Fund. At that time, his employer was consolidating operations and he believed that he would be laid off. Prior to leaving, Neag had consistently earned the highest performance rating and had received a $42,000 bonus in February or March of 2004 based on his 2003 performance.
The commissioner investigated Neag's wage claim and found that Neag should have received bonuses under two incentive plans at Fireman's Fund: The Annual Incentive Plan (AIP) and the Value Creation Incentive Retention Plan (VCIRP).
Annual Incentive Plan (AIP)
AIP bonuses are "totally in the sole discretion" of Fireman's Fund and are intended to "(a) Reward the performance of Participants who have made significant contributions during the Plan Year to the achievement of the Company's annual goals and objectives; (b) Provide an incentive that will encourage superior individual performance; and (c) Encourage the retention of employees who are anticipated to significantly contribute to the future success of the Company." (AIP § 1.)
The process of determining AIP bonus awards begins with the establishment of performance goals. These goals are based on company-wide financial and qualitative performance as well as the performance of each of Fireman's Fund's business units. (AIP § 3.1.) Additionally, each participant in AIP receives individual performance goals that are aligned with and support business unit and company-wide objectives "depending upon the individual's assignment as determined upon recommendation of the individual's supervisors." (AIP § 3.1.)
The "bonus pool," that is, the total amount of money to be paid out in bonuses by Fireman's Fund, is based on Fireman's Fund's financial results. (AIP § 3.2.) This bonus pool is then allocated to the business units "based on segment performance, which may include quantitative and qualitative assessments." (AIP § 3.2.) Business unit leaders, in turn, determine how to distribute their allocation to the "best performers" in their unit. (AIP § 3.4.) These decisions are based on factors "including, but not limited to, the size of the bonus pool allocated to the individual's Business Unit, the Participant's attainment of individual Performance Goals, and the Participant's individual performance against relative peers." (AIP § 3.4.)
Employees who have been selected to receive a bonus award under AIP "will be paid on or about the end of the quarter following the end of the Plan Year." (AIP § 5.1.) The AIP contains two important caveats, however, about the vesting of this bonus. First, "[n]o absolute right to or interest in any Bonus Award shall be considered as having accrued to any Participant prior to the payment of the Bonus Award." (AIP § 5.1.) Second, Fireman's Fund "shall have no obligation to pay a Bonus Award to a Participant who separates employment or active service from the Company prior to the payment date . . ." (AIP § 5.2.) This provision does not apply to employees who leave due to retirement, disability, death or layoff. (AIP § 5.2.)
Value Creation Incentive Retention Plan (VCIRP)
Like AIP bonus awards, VCIRP bonuses are designed to award individual achievement, encourage future individual performance and retain exceptional employees. (VCIRP § 1.) Unlike AIP, however, VCIRP bonuses do not derive from a bonus pool that is divided among business units and, finally, employees. Rather, each participant in VCIRP signs an "award agreement" that describes a fixed number of "value creation units" and the payment date when these units are redeemable. (VCIRP § 3.2.) These units are "contingent awards, subject to the terms, conditions and restrictions" of the VCIRP and the award agreement. (VCIRP § 1.) One such contingency is that the VCIRP is administered by the human resources committee, which has "sole and complete discretion in administering the Plan . . ." (VCIRP § 7.6.) The committee has the power "to make any adjustments necessary in the number of Units awarded or in their valuation to account for business conditions or unexpected events that could (i) materially alter the performance of the Company, or (ii) affect the operation of the Plan." (VCIRP § 7.5.)
As with the AIP, unless they meet certain exceptions, employees are not eligible for the VCIRP bonus if they leave employment prior to receiving payment. (VCIRP § 5.2.) A VCIRP participant who "ceases to be a full time Employee of the Company . . . actively at work and performing services for the Company . . . for any reason . . . other than a Status Change . . . shall cease to be a Plan Participant as of the date that he or she ceases to be an Active Full Time Employee." (VCIRIP § 5.2.) A "status change" means, inter alia, a leave of absence, position elimination, death or retirement. (VCIRP § 5.3(b).)
Neag's VCIRP award agreement, dated January 26, 2004, covers the period of January 1, 2003, to December 31, 2004. Under this agreement, Neag is conditionally granted 800 value creation units, with a target value of ten dollars each. The estimated payment date for this bonus is June 1, 2005. The agreement provides in relevant part: "The award of Units is subject to your continued employment as specified in the Plan." (VCIRP Award Agreement, ¶ 2.)
When Neag voluntarily left Fireman's Fund on February 4, 2005, he made demand upon his employer for payment of the AIP and VCIRP bonuses. Fireman's Fund denied payment and, subsequently, the commissioner brought this enforcement action on Neag's behalf under General Statutes § 31-72.
Fireman's Fund filed a motion for summary judgment (#132) and supporting memorandum of law (#133) on September 28, 2009. The commissioner filed a cross motion for summary judgment (#140) and supporting memorandum of law (#141) on November 5, 2009. Fireman's Fund filed a reply (#144) on November 25, 2009. The parties were heard at short calendar on November 30, 2009.
Fireman's Fund moves for summary judgment on two grounds. First, it argues that there that AIP and VCIRP bonuses are not "wages" under the definition provided by General Statutes § 31-71a(3), and, therefore, the commissioner may not seek to recover the bonuses as a matter of law. Alternatively, even if those bonuses are "wages," Fireman's Fund argues that they did not vest prior to Neag's voluntary resignation under the terms of the bonus agreement. Therefore, because Neag did not earn the bonuses, there is no genuine issue of material fact as to the commissioner's right to seek the bonuses and the claim fails as a matter of law.
In support of its motion for summary judgment, Fireman's Fund submitted the following documents: (A) Deposition of Peter Neag, conducted on September 3, 2009; (B) Copy of Neag's VCIRP award agreement, signed on January 26, 2004; (C) Copy of the VCIRP; (D) Copy of the AIP; (E) Correspondence between Neag and Rita Sabadell, Fireman's Fund's human resources director, dated May 9, 2005, and June 14, 2005; (F) Correspondence from Fireman's Fund describing the calculation of the 2004 value creation units awarded under VCIRP; and, (G) the commissioner's admissions and objections to Fireman's Fund's first set of requests for admission.
The commissioner's cross motion for summary judgment opposes both grounds raised in Fireman's Fund's motion for summary judgment. The commissioner argues that there is no issue of fact that the unpaid bonuses are wages under General Statutes § 31-72 and, therefore, she may seek to recover them as a matter of law. Furthermore, the commissioner contends that even if the bonuses did not vest under the terms of the bonus agreements, such clauses are void as a matter of public policy.
The commissioner submitted the following documents in support of her cross motion for summary judgment: (A) The commissioner's answers and objections to Fireman's Fund's interrogatories and requests for production; (B) Neag's statement of claim for wages submitted to the department of labor, signed on July 1, 2006; (C) Copies of checks signed by Neag showing his legal fees; (D) Correspondence from Deborah Knox of Fireman's Fund to Neag, describing the award of VCIRP units to him, dated January 16, 2004; (E) Correspondence between Neag and Rita Sabadell, Fireman's Fund's human resources director, dated May 9, 2005, and June 14, 2005; (F) Correspondence from Fireman's Fund describing the calculation of the 2004 value creation units awarded under VCIRP; (G) Correspondence between Neag and Justin Rubin of Fireman's Fund tendering Neag's resignation, dated January 19, 2005; (H) Copy of Neag's VCIRP award agreement, signed on January 26, 2004; (I) Copy of the VCIRP; (J) Copy of the AIP; and, (K) Deposition of Peter Neag, conducted on September 3, 2009, and notarized on November 2, 2009.
DISCUSSION
"Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party." (Internal quotation marks omitted.) Provencher v. Enfield, 284 Conn. 772, 790-91, 936 A.2d 625 (2007).
The parties dispute whether the AIP and VCIRP bonuses constitute wages under the definition provided by General Statutes § 31-71a(3). Fireman's Fund contends that these bonuses are not wages because they are awarded on a discretionary basis and are tied to factors unrelated to individual performance. The commissioner argues that the bonuses are linked to Neag's individual performance and are not solely based on discretionary factors. The court concludes that, based on our Supreme Court's recent interpretations of the meaning of § 31-71a(3) and the language of the bonus agreements, the bonuses are not wages protected by § 31-72.
General Statutes § 31-71a(3) defines "wages" to mean "compensation for labor or services rendered by an employee, whether the amount is determined on a time, task, piece, commission or other basis of calculation." "Whether a bonus constitutes a wage under § 31-71a(3) raises a question of statutory construction, which is a [question] of law . . . The process of statutory interpretation involves the determination of the meaning of the statutory language as applied to the facts of the case, including the question of whether the language does so apply . . .
"When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature . . . In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply . . . In seeking to determine that meaning, General Statutes § 1-2z directs us first to consider the text of the statute itself and its relationship to other statutes. If, after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered . . . The test to determine ambiguity is whether the statute, when read in context, is susceptible to more than one reasonable interpretation." (Internal quotation marks omitted.) Weems v. Citigroup, Inc., 289 Conn. 769, 778-79, 961 A.2d 349 (2008).
The Connecticut Supreme Court has given the term "wages" a broad meaning. In Mytych v. May Dept. Stores Co., 260 Conn. 152, 159-60, 793 A.2d 1068 (2002), the court stated: "examination of the plain language of the statutes reveals that the term `wages' has been defined broadly . . . Although [§ 31-71a(3)] lists certain nonexclusive factors that may assist in the computation of an employee's wage, it fails to set forth a specific formula by which wages must be calculated or determined. Rather, it merely requires that wages be paid as compensation to an employee for services rendered. The determination of the proper amount to be tendered purposely is left vague by the reference to `or other basis of calculation' contained in § 31-71a(3).
"The language used in § 31-73(b) also suggests that the legislature intended that the employer-employee agreement, as opposed to a statutory formula, control the manner in which wages are calculated. Section 31-73(b) provides in relevant part: `No employer . . . shall, directly or indirectly, demand, request, receive or exact any refund of wages . . . or deduct any part of the wages agreed to be paid, upon the representation or the understanding that such refund of wages . . . or deduction is necessary to secure employment or continue in employment. . . .' (Emphasis added.) Although the statute does not define the term `agreement,' it provides that the agreement shall not be violated by any deductions or other conditions. Similarly, § 31-71e provides that `[n]o employer may withhold or divert any portion of an employee's wages . . .' The statute does not purport to define the wages due; it merely requires that those wages agreed to will not be withheld for any reason. Accordingly, we conclude that the statutes are not substantive in nature." Id.
In the present case, the court's determination as to whether the bonus plans are "wages" depends on application of the Supreme Court's recent decision in Weems v. Citigroup, Inc., supra, 289 Conn. 782, which held that the payments made pursuant to a bonus plan were not wages because the payment of those wages were solely within the employer's discretion. The employees in Weems challenged the forfeiture provisions of a bonus plan that paid discretionary bonuses to employees in the form of restricted stock. Id., 775. The court held that these bonuses were not wages because they were "purely discretionary." Id., 782. After examining the language of the bonus agreements and the deposition of the employer's human resources manager, the court determined that "the bonus awards are tied to subjective factors such as diversity within a branch, and the profitability of the particular branches, which are factors not entirely predictable or within the control of the specific employee." Id. Because the employees could not earn the bonuses by achieving specific goals through their individual efforts, the court held that the bonuses were not compensation and, therefore, not wages. Id.
The Weems court offered the following rule to apply in cases where an employee claims an employer has wrongfully withheld a promised bonus payment under the wage statutes: "[B]onuses that are awarded solely on a discretionary basis, and are not linked solely to the ascertainable efforts of the particular employee, are not wages under § 31-71a(3)." Id., 782.
At first blush, the meaning of this language in Weems seems unclear because of the court's use of the word "solely" in both parts of sentence. The meaning of this language, however, becomes more evident but upon closer inspection of the entire opinion. Within the context of the entire opinion, Weems appears to hold that an employee who seeks to recover a bonus under the wage statutes must prove that the bonus meets two criteria. First, the bonus cannot be a wage if its award is solely within the employer's discretion. In other words, the employee must have some right to the bonus that restricts the employer from unilaterally withholding it. Second, the bonus must be linked solely to the employee's performance or efforts and not linked to other factors unrelated to the particular employee's performance.
Here, although both bonus plans provide that their award is tied in part to the employee's performance, Fireman's Fund retains sole discretion regarding whether to award the bonuses. Fireman's Fund may elect not to fund either bonus plan at all. The decision to fund the plans, according to the bonus agreements, starts at the top. The "bonus pool" for the AIP, that is, the total amount of money to be paid out in bonuses by Fireman's Fund, is based on Fireman's Fund's financial results. (AIP § 3.2.) Thus, even if an employee's work performance is superior, he or she may not receive a bonus in a particular year because Fireman's Fund may choose, at its sole discretion, not to make a money available in the bonus pool. There is nothing in the AIP that restricts the company's unilateral discretion in this regard.
Although the VCIRP bonus is not tied to a bonus pool, the human resources committee has "sole and complete discretion in administering the Plan;" (VCIRP § 7.6); and may adjust the number or valuation of the employee's value creation units to account for business conditions that could impact company-wide financial performance. (VCIRP § 7.5.) Thus, even if the employee's performance exceeds his or her peers and would otherwise merit a bonus under the criteria outlined in the bonus plans, the employee is never guaranteed that Fireman's Fund will choose to pay the bonuses.
Contrast these agreements, which leave the decision to fund the bonus plans solely within the employer's discretion, to employee agreements in which the employee earns the right to a bonus of a quantifiable amount regardless of the employer's financial success. A hypothetical example is a salesperson who earns a base salary that, at year's end, is supplemented by a bonus based on a percentage of gross sales over a target amount. In that case, the salesperson's bonus is a "wage" because the employer has no contractual discretion to deny the bonus, and the bonus is linked solely to the employee's performance.
Our Appellate Court addressed a somewhat similar fact pattern in Ziotas v. Reardon Law Firm, P.C., 111 Conn.App. 287, 312-13, 959 A.2d 1013 (2008), cert. granted, 290 Conn. 903, 962 A.2d 796 (2009). The court held that an employee properly pleaded a claim for wrongful withholding of wages under §§ 31-71a(3) and 31-72 where he was denied a bonus and his employment contract allegedly "provided for a bonus that fairly reflects his contribution to the [defendant's success] . . . by providing legal services to the defendant's clients and by generating fees." (Internal quotation marks omitted.) Id., 312-13. The defendant law firm had a practice of paying its associates substantial bonuses at the end of the year but kept associate salaries low to "maintain enough working capital to fund cases." Id., 299. It is true that the defendant "alone determined the amounts of the plaintiff's base salary and bonuses from year to year." Id., 292. The trial court's findings, however, suggest that the bonus agreement had a floor for compensation; in particular, "the defendant had promised a bonus of at least $5,000 if the plaintiff performed well during his first year and that the plaintiff, in fact, received a $12,000 bonus that year." Id., 302.
Notably, the Appellate Court decided Ziotas v. Reardon Law Firm, P.C., supra, 111 Conn.App. 287, one month before to the Supreme Court's release of Weems v. Citigroup, Inc., supra, 289 Conn. 782. Thus, the Appellate Court's decision in Ziotas does not cite to or account for the critical holding of Weems. The Supreme Court has since granted certification to appeal the Ziotas decision.
Applying Weems to the present case, the AIP and VCIRP bonuses are not "wages" because Fireman's Fund retained sole discretion to award the bonuses regardless of an individual employee's efforts. Additionally, the bonus are not wages because they were not linked solely to employee performance, but instead may be administered and paid in a manner "to account for business conditions or unexpected events that could (i) materially alter the performance of the Company, or (ii) affect the operation of the Plan." Therefore, the commissioner may not seek to enforce the award of these bonuses through the wage statutes. In light of this conclusion, it is unnecessary to reach Fireman's Fund additional claim that because Neag resigned before the payment date, the bonuses did not vest and Neag has no right to receive the bonuses.
Accordingly, Fireman's Fund's motion for summary judgment is granted, and the commissioner's cross motion for summary judgment is denied.